NO HOLIDAY FOR FEDERATED’S DEC. SALES
Byline: Thomas J. Ryan
NEW YORK — Federated Department Stores Wednesday became the first of what are expected to be many department stores posting lackluster December sales results.
Federated’s same-store sales increased 1.2 percent, missing its original plan of a 3 percent gain. It also said sales in its direct-to-consumer segment fell 26.4 percent as a planned reduction in its Fingerhut catalog was not offset by a jump in Internet sales
Overall, Federated’s results for the five weeks dropped 0.6 percent, to $3.3 billion, as department store sales rose 2.8 percent, to just more than $3 billion. For the fiscal year to date, Federated’s sales are up 3.3 percent, to $17.3 billion, with comps ahead 2 percent.
“Our December department store sales were disappointing, which we think is attributable at least in part to heightened consumer concerns over a slowing economy,”‘ said James M. Zimmerman, Federated’s chairman and chief executive. However, he noted that women’s apparel categories continued to enjoy a strong performance in December, with weaker performances in men’s and home merchandise areas.
“Additionally, as we evaluate this year’s holiday performance we should keep in mind that Federated produced strong December comp-store increases averaging 6 percent for each of the last two years, which made this year’s comparison even more challenging,” Zimmerman said.
The shortfall was expected since Federated during a weekly sales call on Dec. 26 lowered its same-store sales guidance to between 1 and 2 percent. Federated blamed weak sales during the second and third week of December. Federated told analysts Wednesday that comps would have been closer to 2 percent except for the snow in the Northeast over the past weekend. Besides women’s, cold-weather merchandise was strong during the month, Federated said. Inventories were slightly heavy, given below-plan sales, but Federated told analysts that it managed its markdowns and receipt flow well to eliminate any significant dilution to earnings.
As December sales trends weakened, analysts had trimmed their earnings estimates on Federated’s fourth quarter by 4 cents to $2.10 on average, which compares with $2.04 a year ago. But some investors seemed encouraged that sales didn’t come in even worse and shares of Federated rose $3.31, or 9.6 percent, to $37.69 Wednesday on the New York Stock Exchange.
“If they had been overzealous in their plan, they could have been in really bad shape,” said Rosemary Sisson, debt analyst at UBS Warburg. “They knew the environment wasn’t going to be good, so they didn’t overbuy. They went into the season with open eyes.”
Jeff Stein, an equity analyst at McDonald & Co., said markdowns will likely be higher than expected, but he expects Federated will find ways to cut costs to minimize the negative impact on earnings. “This company is a notorious cost cutter and they react very quickly to weaker-than-expected sale trends,” said Stein. Most of the department store chains are expected to indicate that December sales missed plan when they report results today.
Some analysts were more surprised that sales in the direct-to-customer segment slumped to $287 million from $391 million last year, reflecting a strategic downsizing at Fingerhut’s core catalog in order to increase profitability.
Stein said December’s drop in the direct-to-consumer sales was twice the rate of its November decline, but added that management initiated tighter credit standards and that the weaker economy has particularly hurt Fingerhut’s core lower-income customer.
“The increases we’ve seen in gas and home heating costs have severely impacted that customer’s ability to spend,” said Stein. He said the weaker sales were largely offset by continued stabilization in Fingerhut’s delinquency rate, which ran between 20 and 21 percent. Stein had expected the rate to be 24 percent.
Fingerhut’s e-commerce operations, where sales climbed about 40 percent, were a source of encouragement. Federated also saw online sales at its macys.com and bloomingdales.com climb about 150 percent during the month. The company said that, “building on a small base,” it was pleased with progress in this area.